After a few hours of reflection, a US federal jury recently found the National Association of Realtors (NAR) – the country’s largest professional organisation with 1.5 million members – liable for around $1.8bn in damages for conspiring to keep home sales commissions artificially high.

Last week a Missouri jury ruled in favour of plaintiffs (home sellers in several Midwestern states) who accused real estate networks of collaborating with NAR to enforce what’s known in the US as the “cooperative compensation rule”.

Old rulings deemed anti-competitive

What the plaintiffs specifically took issue with was the decades-old NAR ruling which has typically resulted in:

  • Sellers bearing the costs associated with paying the buyer’s agent fees for the party buying their property.
  • Commission rates being locked in, regardless of spiralling house prices and regardless of the digital-age where buyers typically find homes online.

The current US system requires sellers to pay their own agent’s commission which is typically between 5% to 6% of a home’s selling price and this booty is shared with the buyer’s agent.

It’s this model that plaintiffs’ attorneys argue impedes competition by making it difficult for buyers and sellers to negotiate lower rates.

Given that commissions in the US are typically embedded within the listing price, lower commission rates may result in lower house prices.

The verdict could change the industry, leading more buyers and sellers to forego hiring agents.

Verdict fallout

The verdict fallout creates an inflection point for the property landscape across the country.

While agents would be left to negotiate their own commissions with prospective clients, sellers are no longer required to pay buyer’s agent fees.

Given that buyers will now foot the cost of engaging a buyer’s agent themselves, it remains to be seen how many will choose to do so or sidestep them to reduce the cost of purchase.

Sissy Lappin, owner of Lappin Properties, a real-estate brokerage in Houston, described the verdict as a wake-up call for real estate agents. “The verdict could change the industry, leading more buyers and sellers to forego hiring agents,” she said.

While two high-profile names included within the [two antitrust] law suits were the RE/MAX network, plus Anywhere Real Estate (formerly Realogy) both companies chose to pre-empt the result by settling for US$55m and US$83.5m respectively.

Far from over

With NAR planning to appeal the decision, the case is eventually expected to make its way to the US Supreme Court.

Meantime, NAR president Tracy Kasper is adamant that NAR rules serve the best interests of consumers, by supporting market-driven pricing and advancing business competition.

Interestingly, under antitrust rules, the presiding judge has the capacity to triple the damages verdict to a total exceeding $5bn.

Image: Rich Pedroncelli